This week the Valens Securities team highlights our most interesting equity insight from across our tools and our analysis.
Management focus on maintaining ROA’ and confidence about driving growth mean market expectations for ROA’ declines are too pessimistic and the company is undervalued
GOOGL is trading at a 17.1x V/E’, as the market is expecting ROA’ to fade from last year’s 27% levels to 15% over the next several years, with 21% Asset’ growth. However, GOOGL’s success in cornering the internet advertising market, combined with continued robust innovation to help drive their core business and develop non-core businesses which they are beginning to see positive benefits from in their fundamentals, imply that market expectations are too negative. On top of that, management’s renewed focus on creating these opportunities, while also aggressively controlling costs, signals a renewed level of commitment to an intelligent operating model and better sustainability of the company’s ROA’. Expectations for steady ROA’ degradation are therefore too negative.